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May Bad Luck Be Without You: The Effect of CEO Luck on Strategic Risk-taking

Author

Listed:
  • Pascal Flurin Meier

    (Department of Business Administration, University of Zurich)

  • Raphael Flepp

    (Department of Business Administration, University of Zurich)

  • David Oesch

    (Department of Business Administration, University of Zurich)

Abstract

CEOs’ strategic actions are traditionally viewed as independent of luck because CEOs focus on skill-based capability cues. We draw on attribution theory to argue that CEOs often misattribute luck—perceiving good luck as high skill and bad luck as low skill—which impacts their strategic risk-taking. Contrary to notions of self-serving behavior, we theorize that CEOs react more strongly to bad luck, especially when they have prior negative experiences affecting their tendency for internal attribution of bad luck. By measuring luck as the exogenous component of recent firm performance, we find supporting evidence for our hypotheses, suggesting that luck has a meaningful and systematic effect on CEO behavior and thereby subsequent firm trajectories.

Suggested Citation

  • Pascal Flurin Meier & Raphael Flepp & David Oesch, 2024. "May Bad Luck Be Without You: The Effect of CEO Luck on Strategic Risk-taking," Working Papers 393, University of Zurich, Department of Business Administration (IBW).
    • Handle: RePEc:zrh:wpaper:393
    as

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    References listed on IDEAS

    as
    1. David Souder & Philip Bromiley, 2012. "Explaining temporal orientation: Evidence from the durability of firms' capital investments," Strategic Management Journal, Wiley Blackwell, vol. 33(5), pages 550-569, May.
    2. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2018. "Time varying risk aversion," Journal of Financial Economics, Elsevier, vol. 128(3), pages 403-421.
    3. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
    4. Brian L. Connelly & Qiang (John) Li & Wei Shi & Kang‐Bok Lee, 2020. "CEO dismissal: Consequences for the strategic risk taking of competitor CEOs," Strategic Management Journal, Wiley Blackwell, vol. 41(11), pages 2092-2125, November.
    5. Yan Zhang, 2008. "Information asymmetry and the dismissal of newly appointed CEOs: an empirical investigation," Strategic Management Journal, Wiley Blackwell, vol. 29(8), pages 859-872, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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